Speech by Carlos Ghosn on "NISSAN 180 UPDATE"

Nissan continues to build momentum… and the force behind our progress is now called NISSAN 180, carried by the high motivation of all our employees.

“Momentum” implies moving swiftly from one situation to another… at a growing speed. The numbers tell the story, so here’s how our momentum appears.

- Three years ago, in fiscal year 1999, before Nissan’s revival process began, revenues were 5.98 trillion yen. For fiscal year 2002, revenues are 6.85 trillion yen.- Three years ago, our operating profit was 83 billion yen. Today we’re reporting 737 billion yen.- Three years ago, Nissan’s operating margin was 1.4%. Now it’s 10.8%.- At the beginning of 1999, before the Alliance with Renault, Nissan’s net automotive debt was a staggering 2.1 trillion yen. Today, the debt is gone.

The bottom line? Nissan’s revival is a reality. Three years ago, our business was in accelerated decline. Today, we’re not only back in the global race – we’re among the pacesetters.

I will review our business performance and give you key preliminary figures for fiscal year 02. After I present our outlook for the new fiscal year, we will hand out presentation materials and I will respond to your questions. Please keep in mind that the figures I give today are still subject to minor adjustments before we disclose final figures on May 21 after our board of directors meeting. We have already filed this presentation with the Tokyo Stock Exchange.

II. Review of FY02

We are beginning the crucial second year of NISSAN 180, our three-year plan aimed to establish sustainable, profitable growth. As you know, the plan has three main commitments: 1 million additional sales worldwide by the end of fiscal year 04, measured between October 2004 and September 2005 and compared to fiscal year 01… an 8% operating margin… and zero net automotive debt -- both at constant accounting standards.

Let’s begin with the “1” – with a review of fiscal year 02 sales volumes. Overall, we sold 2,771,000 vehicles worldwide in the past year, up 174,000 units, an increase of 6.7% from fiscal year 01 in a very difficult environment. Our full-year sales are 2.4% below the forecast we made at the interim financial announcement last October and eight-tenths of a percent below the initial forecast made in May 2002. The deficit is mainly due to shortfalls in U.S. and European sales, particularly in the second half.

Looking at our volumes by region, in Japan we sold 102,000 additional cars in a tough market where the total industry volume increased eight-tenths of a percent. Nissan sales have increased 14.3%, to 816,000 units. Excluding minicars, sales were 768,000, up 7.7%. Our sales increase was driven by the six new models we introduced – namely, Moco, Elgrand, Fairlady Z, Cube, Skyline Coupe and Teana. Each model met or exceeded its sales target.

Our strategy in the entry-level segments has proven successful. The March made the most significant volume contribution, setting record sales of 158,000 units – the highest annual volume of any Nissan model sold in Japan for the past 12 years. The March has been among the Top 10 best-selling cars every month since its launch in March 2002. Our new Cube is also doing well, joining the March on the best-seller list for the past six months.

For the full year, Nissan’s market share rose to 19%, which is 1.1 percentage points above the prior year. More significantly, this marks the first time we have increased our annual market share by more than 1% in 31 years. In addition, the quality of our sales was improved. Sales were mostly made on the merits of our products themselves and were not inflated by additional incentives.

Turning to the United States, our sales are up 1.0%, to 726,000 units, in a market that was down 1.9%. In this region, we sell our products in two channels – Nissan and Infiniti.

The Infiniti Division realized its highest sales year since the division began in 1989. With record sales of 95,000 units, up 35% over the prior year, Infiniti was the fastest-growing luxury brand in the United States. Contributors included the FX45… the M45… and, especially, the new G35 Sedan and Coupe, which was in the spotlight after being named Motor Trend’s Car of the Year. Infiniti incentives were the lowest in the industry’s luxury segment.

In the Nissan Division, sales were down 2.7%, to 631,000 units. The Altima and 350Z continue to sell at a strong pace. Altima sales were up 30% over the prior year, at 204,000 units. And the Z is now the best-selling sports car in America, selling 23,000 units in its first eight months on the market. The Murano and the Maxima were launched during the last quarter of the fiscal year, so their sales are just now beginning to make a significant contribution. Stalled results were felt in the entry-level sedan and truck segments, where our Sentra, Frontier and Xterra compete. Those segments bore the brunt of record levels of industry incentives … and we continued to resist them. As a consequence, our volumes were lower than forecasted. Our strategy continues to be based more on optimizing profitability than maximizing volumes.

In Europe, sales continue to be a challenge. The total industry volume was down 2% in fiscal year 02. Nissan sales dropped 3.8% to 474,000 units… but keep in mind that Europe’s fiscal year ends in December, so the new Micra sales are not reflected in these figures. We have been encouraged by the brisk initial sales of our new Micra, which was launched in January, helping to offset the sluggish sales of Almera and Primera. For the first three months of 2003, total Micra sales in Europe were up 42% compared to the same period in 2002. To meet the growing demand, we have decided to raise Micra production capacity in our Sunderland Plant by 25% to 200,000 units.

Turning to General Overseas Markets, including Mexico and Canada, our sales increased by 12.3% to 755,000 units. We achieved significant volume increases in Mexico, China, Canada and Australia.- In Mexico, sales in calendar year 2002 increased 11%.- In China, sales were up 82% over fiscal year 01.- In Canada, sales were up 12.4% over the prior year. Nissan’s brand power was also given a boost when the Z was recognized as Car of the Year and the Murano was named Truck of the Year. In the Infiniti Division, sales jumped 95%, and Infiniti outperformed all other luxury brands in Canada in year-over-year growth. - In Australia, sales were up 12.8% over the prior year.

In Brazil, the Frontier became the first Nissan vehicle to be assembled locally at Renault’s Curitiba plant. The April launch was a success, and the Frontier was named Brazil’s Pickup of the Year.

Turning to the next NISSAN 180 commitment – achieving an 8% operating margin – I will review Nissan’s consolidated financial performance over the past fiscal year.

Consolidated revenues came to 6.85 trillion yen, up 10.6% from last year, mainly due to higher volume and mix, including the expansion of the scope of consolidation, primarily as a result of the integration of Diamondmatic -- the former automatic transmission and CVT affiliate of Mitsubishi -- into JATCO. On a consistent basis, the increase was 9.8%. There were no other accounting method changes, but foreign exchange rates produced a negative impact of 87 billion yen.

Nissan’s consolidated operating profit improved by 50.7% from 489.2 billion yen in fiscal year 01 to a record 737 billion yen in fiscal year 02. As a percentage of net sales, the operating profit margin came to 10.8% -- which is the top level in the global automotive industry and is – by far – the highest level in Nissan history.

Analyzing the variance between last year’s 489.2 billion yen operating profit and this year’s 737 billion yen, several factors are considered:

- The effect of foreign exchange rates produced a 35 billion yen negative impact to consolidated operating profits for the full year. The average value of the dollar in fiscal year 02 was 121.98 yen compared to 125.14 yen in fiscal year 01. The average value of the euro was 118.13 yen compared to 108.8 yen in fiscal year 01. The impact from the dollar was minus 33 billion yen, while the euro produced a gain of 19 billion yen, which was more than offset by a 22 billion yen loss coming from the Mexican peso.- The change in the scope of consolidation produced no impact to operating profits.

- Higher volumes and mix globally contributed 146 billion yen for the full year, coming from all regions.- Selling expenses increased by 21 billion yen, which includes a reserve of 12 billion yen to cover future service and recall campaigns.- The sales finance companies contributed an additional 23 billion yen.- The improvement in purchasing costs was, again, a major contributor to the growth in profitability. The net accounting effect of this year’s effort came to 227 billion yen. Once again, this year’s performance reinforces the competitiveness of Nissan’s supplier base. We continue to track the profitability of 28 suppliers in which at least 20% of their business depends on Nissan. We estimate that 22 have increased their profitability in fiscal year 02. Two are expected to be in the red. The growth and profitability of our company is not only benefiting Nissan. Our partners are benefiting as well.- Product enrichment and the cost of regulations had a negative impact of 67 billion yen.- As previously announced, we spent an additional 38 billion yen in R&D related to our growing product development program and necessary additional expenses for new technologies.- Increased efficiencies in manufacturing and logistics contributed an additional 17 billion yen.- General and administrative and other expenses increased by 4.2 billion yen. Included in that figure is 8 billion yen in additional expenses due to the startup of our Canton Plant.

By region, profitability in Japan improved once again as we continued to increase the percentage of profitable cars among our total sales. Operating profits came to 395 billion yen, compared to 289.7 billion yen in fiscal year 01. Nissan dealers, including subsidiaries and independents, reflect a positive trend as well. In 2002, 93% of our dealers were profitable, compared to 54% in 1999… and 80% of our dealers increased both share and operating profit.

Profitability in the United States and Canada came to 243 billion yen compared to 158.9 billion yen in fiscal year 01. Despite the small gain in volume, our profitability increased as a result of a major improvement in mix as Infiniti sales were up 35% and incentives were lower in both the Infiniti and Nissan divisions.

Europe also increased its contribution to our profitability in fiscal year 02. We achieved an operating profit of 22 billion yen compared to 3.2 billion yen for fiscal year 01.

In General Overseas Markets, we made an operating profit of 77 billion yen compared to 57.8 billion yen in fiscal year 01.

Finally, inter-regional eliminations came to zero.

Ordinary profit came to 709 billion yen, up from 414.7 billion yen in fiscal year 01.

The last preliminary income statement number I will review is the bottom line net income after tax. Subject to minor changes in our consolidated tax position, which is not closed, we expect to report net income of 495 billion yen, representing an earnings-per-share of 110 yen. The effective consolidated tax rate for the year is expected to be 29%.

In fiscal year 2002, Nissan was the best-performing stock in the global automotive industry. Nissan’s share price has doubled since the start of the Nissan Revival Plan in April 2000, even as the Nikkei stock index has slid 50%. At the next annual general meeting on June 19, shareholders will be asked to approve a dividend of 14 yen per share for fiscal year 02, as announced last October. As a reminder, the annual dividend per share is planned to increase to 19 yen for fiscal year 03 and to 24 yen for fiscal year 04.

Finally, turning to the third component of NISSAN 180 – eliminating our automotive debt – it’s gone! Two-point-one trillion yen of debt has been totally wiped out. For the first time in a very long time, we are 8 billion yen cash positive, and it is a good feeling.

Debt elimination is no longer a driver in the management of our business. From now on, Return on Invested Capital will take center stage. ROIC is the ratio between operating profit and automotive fixed assets, net working capital and cash. We have reached an estimated level of 19.5%, which is the top level in our global industry. Our intention is to stay at or above the level of 20%. In terms of operating margin and ROIC, our objective is to remain the most profitable global automaker.

III. Outlook for FY03

Fiscal year 2003 is starting with a high level of volatility and uncertainty, but we will not duck our responsibility to try to guide you in the most transparent way possible on Nissan’s performance and expected results. In the context of these exceptional circumstances, I will share with you our forecast for the coming year’s performance.

Our global sales volume forecast for the year is 3,040,000, up 9.7% versus fiscal year 02. When we achieve this level, it would be the first time since 1991 that Nissan would have conclusively passed the three-million-unit sales mark. Our product launch schedule and our increased marketing and sales efficiency will support our growth. We will launch 10 all-new products, representing 23 regional product events worldwide.

In Japan we forecast a slight decrease in total industry volumes to 5.8 million units. Our sales objective for the year is 867,000 units, an increase of 6.3%.

In the United States, we forecast a market of 15.5 million units, a 7% decline from fiscal year 02. Our sales objective is 852,000 units, an increase of 17.3% -- which takes into account the new vehicles coming from our Canton Plant.

In Europe, we forecast total industry volumes of 17.9 million units, down 5.8%. Our sales objective is an 11.8% increase from fiscal year 02, to 530,000 units.

For General Overseas Markets, including Mexico and Canada, our sales objective is 791,000 units, a 4.8% increase.

As always, the new fiscal year will bring with it risks and opportunities. Risks include weaker economic conditions in Japan and further decreases in total industry volume and/or even higher-than-foreseen incentives – particularly, but not exclusively -- in the United States and Europe. On the side of opportunities, we see our greatest potential in the accelerated implementation of all the action plans of NISSAN 180.

In weighing these factors, we are filing the following forecast with the Tokyo Stock Exchange, using a foreign exchange rate assumption for the year of 120 yen per dollar and 125 yen per euro. - Revenues are forecasted to be 7.45 trillion yen, up 8.8%.- Operating profit is expected to be 820 billion yen, up 11.3% from fiscal year 02, giving an operating margin of 11%.- Ordinary profit is expected to reach 781 billion yen.- Net income is forecasted to be stable at 495 billion yen. 2003 will be the first year of normal tax treatment in Japan.- Capital expenditures will be 420 billion yen.- ROIC is expected to be 20%.- Net cash generated by operations is estimated at 100 billion yen even after our investment of 120 billion yen to buy the 50% stake in Dong Feng.

IV. Conclusion

This is a dynamic period in the life of our company.

Next month we plan to announce the start of operation of the joint venture we are establishing with Dong Feng Corporation in China. Through our new company, Dongfeng Motor Company, we plan to launch six models by 2006, all of which will be manufactured locally. The first of those models – the Sunny – was introduced at Auto Shanghai earlier this week. Our expansion in this rapidly developing market is a long-term investment with great potential. By the year 2006, we are targeting sales of 550,000 vehicles in China – specifically, 220,000 passenger vehicles and 330,000 commercial vehicles. It’s clearly a significant growth and profit opportunity.

In the United States, we are ready for the startup of our brand-new plant in Canton, Mississippi. Hiring is complete. Suppliers are on schedule. Quality objectives are being met. Investments are below budget. The first all-new Quest rolls off the line on May 27, with the start of sales in July.

2002 was the “Year of Japan,” and it was successful. 2003 will be the “Year of the United States,” and we will give our best to ensure its success as well. Five of the six new models we will launch in the U.S. market will be built in Canton… and, obviously, the Z Roadster is the sixth. Most importantly, these new models are in high-volume, high-profit segments – the Quest in the million-unit minivan segment… the Titan King Cab and Crew Cab full-size trucks, a two-million-unit segment… and the Pathfinder Armada and Infiniti SUV, in a 750,000-unit segment. Except for the marginal sales of the Quest in 2002, Nissan has had zero sales in all these important segments in 2002, so incremental sales and profits are ours to gain.

In terms of attractive and competitive new products… scale of investments… and manufacturing capability – the Canton Plant and Dongfeng Motor Company are bold expressions of our renewed competitive spirit. In 2003 – Nissan’s 70th anniversary year – our vision for the future has never been clearer. NISSAN 180 is setting a course for sustainable, profitable growth that will enrich people’s lives. And we are running to make it a reality.

Only results will judge our degree of success. What we say will be backed up by what we deliver. Nissan’s revival is a story that is still in development. The story starts with the Nissan Revival Plan. It will end with NISSAN 180. Chapter 1 of NISSAN 180 – fiscal year 2002 – is over. We still have two chapters to go. When you look at the pattern of what we have accomplished so far, it is clear that we will continue to grow, and to grow with significant profit. A lean cost base and our ability to offer attractive products are essential for our competitiveness. We have already removed the burden of massive debt, and we now focus on providing a top level of return on invested capital.

NISSAN 180 is continuing to unfold and – as in life – setbacks are always possible. If any company is prepared to face them, that company should be Nissan. As we turn the page to Chapter 2 of NISSAN 180, we will continue to fine-tune the same tools, the same management practices and the same level of commitment that have brought us this far. Like NRP, NISSAN 180 is not a short-term plan… a quick fix. Both plans were designed to build for the future. We have significantly increased our capital expenditures, investing in assets that will generate tomorrow’s sales and profits. We have done the same in research and development, devoting more resources to product and technology development.

From the beginning, we have said there was no problem at a car company that good products could not solve. So now please turn your attention to the first product to come in fiscal year 2003 in Japan… the new Nissan Presage.

The Presage will be launched in the highly competitive, high-volume minivan segment. Its streamlined silhouette emphasizes its stylish, modern design. Families will appreciate its comfortable, roomy interior. One of the Presage’s most attractive features is its flexible third-row seat. In the former model, 10 steps were required to arrange the rear seat; now even a child could do it with one easy move. Finally, the Presage will be certified as an ultra-low emission vehicle, providing an important environmental benefit. You’ll see more of the Presage when it is launched this summer.

Thank you for your attention and your continuing interest in Nissan. Now we will move to your questions….